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Why are J.C. Penney Shares Losing Sheen?

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Shares of J. C. Penney Company, Inc. (JCP - Analyst Report) tumbled to touch a 52-week low of $9.93 on Wednesday, Sep 25, and eventually closed trade at $10.12. The stock’s year-to-date performance is also disappointing, as it has plunged 51.4%.

Shares of this retail chain have been on a downtrend since the beginning of August. Given its dismal second-quarter fiscal 2013 results and the numerous challenges that the company faces at present, the stock has more downside left. J. C. Penney has been in the red zone since the beginning of fiscal 2013, posting two successive quarterly losses.

We observe that the decreasing revenues and higher losses are one of the primary reasons behind the stock’s downslide. Moreover, its restructuring initiatives have been crumbling as well, as the company is showing no improvement. Alongside, it is constantly lagging its peers, Macy’s Inc. (M - Analyst Report), Target Corporation (TGT - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report) in terms of performance.

For the second quarter, J. C. Penney reported an adjusted loss $2.16, dashing all hopes of recovery, at least in the near term. The loss incurred was wider than the year-ago quarter loss of 37 cents. The Zacks Consensus Estimate for the quarter was a loss of $1.13.

If we look at the earnings surprise history, J. C. Penney has missed the Zacks Consensus Estimate with an average negative surprise of approximately 523% in the trailing four quarters.

J. C. Penney’s dismal quarterly performance was reflected in the downward movement in the Zacks Consensus Estimate, as analysts are increasingly losing hope about the stock’s future performance. The Zacks Consensus Estimate of loss for fiscal 2013 widened significantly in the last 60 days to $5.78 cents per share from $3.48.

Investors remain wary of this Zacks Rank #3 (Hold) stock as the company struggles to cope with the falling revenues. In a major development, the company’s board of directors discharged the Chief Executive Officer (CEO) Ron Johnson of his duties, as his ambitious transformational ideas failed to materialize. Consequently, the company’s former CEO, Myron E. (Mike) Ullman, III has been reinstated in his post with immediate effect.

Further, in order to shield itself from takeover attempts, J. C. Penney implemented a Stockholder Rights Plan – often referred to as “Poison Pill” – to ward off any effort to gain a controlling interest in the company by any person or a group of persons, which could be detrimental to the company or its shareholders.

In the latest development, according to Reuters, J.C. Penney is seeking to raise nearly $750 million to $1 billion in new equity to construct stronger cash reserves to gear up for the holiday season. Management is also looking forward to build a strong liquidity position in case the company’s performance does not meet the desired expectations.

It remains a wait and watch story whether the initiatives undertaken could bring back the derailed stock on track, and rekindle the stock’s momentum.

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